The April Jobs Report

This was the least noticed great jobs report that I remember.

Employers added 290,000 jobs in April, the Labor Department said on Friday, far more than analysts had expected.

The department also revised figures for February and March to show 121,000 more jobs were added than previously thought.

The unemployment rate, however, rose to 9.9 percent as discouraged workers re-entered the labor force to look for work.

It was good news all over the place. The number of hours worked also rose slightly. Of the nearly 300,000 jobs gained, only about 66,000 were census jobs, very tenuous, and so this was an excellent report. Meanwhile, the unemployment rate rose to 9.9%. That's actually good news as well. That rose because so called discouraged workers are less discouraged and re entering the work force.

I'm sure the president will take credit for this report sometime today and well he should. This positive report could not have come at a worse time. No one cares. The major indices are all hovering down about 2% this morning again.

The situation in Greece continues to lead the headlines and this very positive jobs report has become almost an afterthought.

Demonization and the Arizona Immigration Bill

Here's one thing I am absolutely certain of regarding the new Arizona anti illegal immigration bill. No one's civil rights have been violated yet. I know this because the law doesn't go into effect until August and so it would be impossible.

That's an important statement of fact because opponents of the bill are certain that this bill will trample on civil liberties. Furthermore, when pressed to back up these assertions, they make claims that aren't in the law. For instance, they claim police officers will be able to stop anyone of Hispanic descent and "ask for their papers". Of course, the law only allows for police to ask for identification during the course of another stop for another violation of the law. It's also alleged that this allows racial profiling. In fact, the law specifically prohibits racial profiling.

In fact, this law does nothing that federal laws don't already do. I know this because the authors of the law were careful not to violate the "Supremacy clause". That's the portion of the constitution that states that any federal statute overrides a state statute and thus makes said state statute unconstitutional. So, if the Arizona law is unconstitutional, then what does that make federal law?

In fact, opponents have gone so far as to suggest that this will give Arizona police license to abuse the law. Of course, not only is that a totally uncalled for indictment of the police in Arizona, but wouldn't any law be open to abuse by those that are corrupt.

The one thing that this law has done is opened up a much needed debate on illegal immigration. On the other hand, there has been so much demonization of the law and its supporters that the debate has been entirely rudimentary. We aren't debating the best way to seal the border, stop companies from hiring illegals and what to do with the illegal immigrants already here. Instead, one side accuses the other of being racist. The other responds in kind and the debate is about culture and not illegal immigration.

The Strange Case of Biz Radio

If you believe the worst about Biz Radio and its founder Dan Frishberg, it was nothing more than one part of an elaborate Ponzi Scheme. Frishberg is a Registered Investment Adviser (RIA) who boasted once of managing about $300 million of others' portfolios. Yet, he's seen that number grew exponentially after he launched Biz Radio which included his flagship show, the Money Man.

About four years ago, Frishberg started the hedge fund Daniel Frishberg Financial Services. The fund boasted of trying to raise $100 million into a series of diversified investments. At roughly the same time, he started Biz Radio. Biz Radio would boast of the only all business talk format in Houston, Texas. Often, Frishberg would boast of having a small but affluent audience.

That claim has come into serious question. One former employee, who worked at Biz Radio in 2008, says that many of the programs wouldn't even have 100 listeners and even the top programs wouldn't even get to 1000 listeners. Still, this employee says that most of the top on air talent and some of the support staff were making in excess of six figures yearly.

So, how were they able to do this? It appears, according to SEC filings, that the hedge fund was nothing more than a slush fund to keep this radio station going even though it hopelessly had no revenue stream to speak of. Meanwhile, the radio station expanded into other markets like Denver and San Antonio with similar results. Meanwhile, investors who thought they were investing in a sophisticated hedge fund were really having their money being poured into the bottomless pit of Biz Radio. All the while however, the credibility from having his own radio show was growing Frishberg's RIA business and it ballooned to over $300 million.

The first shoe to drop came last November. That's when the SEC charged hedge fund manager Al Kaleta with fraud. He had raised just more than $10 million from investors with claims of a pseudo bond investment. He told these investors that he was going to use their money to lend to upstart businesses at 14%, give the investors 12%, and keep two percent for himself. In reality, according to the SEC, Kaleta's fund gave all the money Frishberg's fund and that poured it into Biz Radio.

Business ethics author Chuck Gallagher has been following the case closely. Gallagher described one especially egregious case to me. In this case, Kaleta convinced an 88 year old retiree to invest in his fund and described the investment as a pseudo bond. Instead, this retirees money was used to fund Biz Radio and has mostly been lost. Following the SEC's charges, Frishberg cut ties with Kaleta however Gallagher says he's still not sure that's actually happened.

The next shoe to drop came in January of this year. That's when Biz Radio and Frishberg got into a business deal with Houston radio entrepreneur Rehan Siddiqui. Siddiqui was leasing space at another Houston radio station with a much greater frequency. in this fairly complicated deal, Siddiqui would own Biz Radio's frequency while Frishberg and Biz Radio would lease Siddiqui's old station's frequency. It turned out to be nothing more than a fraud. This deal would have Siddiqui lease to own Biz Radio's former frequency and he paid six months, or $180,000, up front. He did so at the end of 2009. Then, Biz Radio's new frequency approached it about their own lease payments. Biz Radio couldn't pay and when they couldn't, they took Sidddiqui off the air and returned to their old station. Siddiqui turned around and sued and that suit, now up to $18 million, is still making its way through court.

Finally, the last shoe to drop happened earlier today and Gallagher predicts criminal charges soon.

Today, in fact, likely by the time this is posted there will be a hearing seeking, to put it simply (cause that’s the way I think), to consolidate the SEC receiver’s power to protect investors beyond Al Kaleta and Kaleta Capital Management (KCM) to include Daniel Frishberg, Daniel Frishberg Financial Services (DFFS – his RIA), BizRadio, BizMedia and other “shadow” companies named – Frishberg Global Investments, LLC and Portnoy, LLC.

In the filing the SEC receiver states (in part) the following in the motion to the court:

• Daniel Frishberg and Defendant Al Kaleta created a network of companies (KCM, DFFS, BizRadio, BizMedia, FGI and Portnoy) (the “FK affiliates”) – all owned and controlled by Frishberg and Kaleta
• DFFS and F&K were investment advisory firms through which Frishberg and Kaleta developed a substantial client base

• 
  

The situation remains fluid.

The Politics of Greece

As most have probably heard the equity markets have had quite a roller coaster day today.

The Dow plummeted almost 1,000 points Thursday afternoon, an all-time intraday record loss, before roaring back. The wave of selling, which still has the markets on track for their worst day of the year, was sparked by growing fears that Europe's sovereign debt crisis will spiral out of control and further damage the crumbling euro.

Today’s Markets

As of 3:33 p.m. ET, the Dow Jones Industrial Average fell 403.19 points, or 3.71%, to 10460.85, the Standard & Poor's 500 dropped 42.55 points, or 3.65%, to 1123.35 and the Nasdaq Composite lost 90.74 points, or 3.78%, to 2312.45. The FOX 50 sank 32.33 points, or 3.79%, to 820.88.

Everyone and their mother will rush to the television to "analyze" why this is happening. In a word, it is PANIC. There's no reason for this kind of volatility. Still, that panic has an underlying truth.

In this case, Greece's out of control spending caused it to need a bailout. Then, when the country did receive a bailout, the people of Greece revolted when the strings attached to the bailout included increased taxes and cuts in entitlements and pensions.

Yesterday, I ate at a diner in which the waitress said that all Greece had to do was cut benefits years ago. Today's riots show how naive such a thought is. Even with the specter of the country's impending bankruptcy the people were still rioting in response to cuts in entitlements.

The reality is that many countries, ours included, have debt structures similar enough to Greece and no one believes that the governments that rule these countries have the stomach to do what is necessary to fix their fiscal situations.

President Obama has done a two step on most of his policies. He claims that taxes haven't gone up. He's claimed a lot. One thing he can't avoid is the fact that our deficit is nearly two trillion dollars and now, with Greece, deficits and debts become even more of an issue. Fiscal hawks will become even more in vogue as a result of Greece. That's because that is what we need. To avoid the fate of Greece our government needs to make the tough choices the Greek government couldn't make.

Jon Burge Up on Trial

The notorious former Police Commander in Chicago, Jon Burge, who is linked to roughly 200 false confessions that were gotten through the use of torture.

One of the city's most persistent and troubling scandals reaches federal court today when jury selection begins in the trial of Jon Burge, the former Chicago police detective accused of overseeing the torture of suspects.

For nearly two decades, Burge and his detectives allegedly sent dozens of men to prison on the basis of coerced confessions, deepening bitterness between police and minorities and helping inspire former Gov. George Ryan to reject capital punishment and empty the state's death row.

But Burge, now 62, living on a police pension and reportedly in poor health, will not be tried for any act of torture. While federal prosecutors say they will prove that he and his detectives abused suspects, the statute of limitations expired long ago.

Burge isn't merely living in Florida but he's doing it on the city's pension. Despite being fired in 1993, Burge continues to receive his pension. Furthermore, while he faces criminal charges, he isn't charged directly with anything related to the torture. That's because the torture was finally brought to light just after, conveniently enough, the statute of limitations ran out. These charges relate to Burge's alleged false statements under oath about this abuse.

This entire case is wrapped up in Chicago's culture of corruption. Richard M. Daley was Cook County State's Attorney from 1981-1989. It was his prosecutors that systematically took confessions from people that claimed to have been tortured. Besides his name, Daley ran for mayor under his record of convictions which we now know was heavily inflated by systematic torture. Furthermore, it was Mayor Harold Washington that in the early 1980's promoted Burge to commander even as allegations were prevalent.

I've been speaking with one of Burge's victims, Mark Clements. He was charged with four counts of murder stemming from a fire to a two flat in the Southeast side of Chicago in 1981. Clements says he was beaten in the chest for the better part of twenty minutes by a Chicago Police officer named John McCann. McCann then proceeded to scream racial epithets at Clements and then squeezed his genitals until Clements finally agreed to confess. Clements then proceeded to tell Cook County Prosecutor Kevin Moore that he had been tortured when Moore came in to take his confession. Clements was then tortured again by McCann when McCann found out that Clements dared to accuse him of torture. Clements was 16 at the time of his arrest and was given four life sentences without the possibility of parole.

Clements was only released from prison in August of 2009, even though his case was the subject of media scrutiny throughout his incarceration. Clements credits Bernadine Dohrn, wife of former Weather Underground member Bill Ayers, with providing the legal help that ultimately got him released. One reason was that Cook County refused to test evidence for DNA when those tests became available. For most of his incarceration, Clements was represented by legal aid which didn't have the resources to do it himself. It wasn't until Dohrn connected Clements to powerhouse law firm Skadden, Arps, Slate, Meagher & Flom, which spent several million dollars of its own resources that enough evidence was presented to allow his release.

Is the U.S. A Sub Prime Borrower?

Financial analyst Peter Schiff makes the comparison.

Euro Pacific Capital president Peter Schiff says it's better to have an inflexible currency — and that the ability to print money is making the U.S. a subprime borrower.

“The U.S. government is making the same mistakes that subprime borrowers made when (banks) were making teaser rates on their mortgages,” Schiff says.

“What happens if interest rates go up to 10 percent, which is half of what they were in 1980? All of a sudden, we’re paying $1.5 trillion a year (in interest),” Schiff told CNBC.

Sub prime was always a house of cards. It was done with no money down loans where income was stated but not verified. This lead to all sorts of fraud and abuse. On top of this, sub prime was almost exclusively financed by Adjustable Rate Mortgages. This house of cards was masked because the hot real estate market allowed for refinancing and sales before there was too much trouble.

That house of cards ended when people could no longer refinance and these ARM's adjusted up. The U.S. debt is financed by U.S. Treasury bonds. These are ARM's on steroids. In sub prime, these ARM's had fixed rates for 2, 3, and 5 years. U.S. Treasury bonds adjust day by day and minute by minute.

Schiff's point is that we are already over leveraged. Yet, rates are now low. Soon, we'll be financing 12-15 trillion dollars worth of debt at rates that are much higher. Our debt is already a house of cards. It's financed purely by our reputation. What will happen when that debt is financed at 6-8%? It could be the same trigger that ultimately doomed sub prime.

Next Stop Debt Contagion

The equity markets have been in free fall all week and the main reason is something called debt contagion. The troubles in Greece look like they may spread to countries like Spain, Portugal, Italy and others we don't yet know about. We're now learning that the Greeks hid their debt troubles through a complicated set of accounting tricks. So, the markets are not only fearful that this bailout won't be enough to save Greece but that others will fall like dominos.

The ink was barely dry on the $150 billion European Union/International Monetary Fund bailout of Greece, when world stock markets tanked on two major fears. First, financial analysts are concerned that the bailout money won't be enough to cover Greece's borrowing needs from its out-of-control budget deficit. Second, there are fears that the EU/IMF deal will not be approved by the German parliament in a vote scheduled for Friday.

Additionally, there are new worries that the Greek debt contagion will spread to Spain and elsewhere in Europe. The looming specter of debt default and deflation is heavy in the air for investors worldwide.

Making market matters even riskier,German Chancellor Angela Merkel faces key regional elections this Sunday in populous North Rhine-Westphalia, including the conservative areas of Cologne, Bonn and Stuttgart. These cities hate government debt and overspending as much as the rest of Germany, if not more so.

In fact, we've seen this before. In May of 2008, Bear Stearns was bailed out and we averted disaster for about four months until we couldn't do the same for Lehman Bros. So, if history is any guide, a bailout means run for the hills in equities and they've responded in kind.